GSBulletIn: Could Gold lose its shine, in India?

Could Gold lose its shine, in India? Though overtaken by China in recent years, India has always been a heavy-weight on the demand side of […]

Could Gold lose its shine, in India?

Though overtaken by China in recent years, India has always been a heavy-weight on the demand side of the global gold market and it’s still absorbing about one quarter of global supply. Thus, any change in the behavior of the Indian gold consumer must have an impact on the global supply-demand balance, and subsequently on the gold price.

According to research and consultancy company GFMS (Gold Fields Mineral Services), India’s Gold imports dropped 39.4% in the first five months of 2018, compared to the same period of the last year. Demand may well pick up in the second half but not enough to match last year’s figures. A recent Reuter’s poll suggests that Gold imports into India may drop 18% this year, from a year ago.

Historically Gold has always been a pillar of Indian culture, serving as the primary vehicle for household savings, mainly in rural regions. However, the introduction in India of an ID-card with a Personal Account Number (PAN) and its rapid propagation may well act as a potential game changer. PAN does not only facilitate access to bank accounts, but to all sorts of transactions, including the purchase and sale of vehicles, properties and foreign currencies.

Well possible that the next generation of Indians will be less inclined to use gold as a store of value and if that’s the case, it will have a negative impact on global demand. In the best case, it will limit the upside; in a worst case, it will put pressure on gold prices.

Conclusion: While it is always a good idea to hold some physical gold in a bank vault as a protection for a worst case scenario (not to get rich, but to avoid getting poor), gold in form of ETFs are, in our opinion, no longer a “must have” in the asset allocation of a diversified portfolio.

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